Market Overview
Markets have developed a wait and see approach as the US returns from Presidents Day public holiday and the US/China trade talks resume in Washington today. There was little real steer across markets yesterday and this consolidation has leaked into today’s session.
There are still several questions that need to be resolved on major markets. How does EUR/USD respond to breaking $1.1300? Can gold decisively breakout above $1326? Can the rebound in global equities continue?
These questions will likely find their answers coming from the US/China trade talks which have the potential to be supportive for risk appetite and negative for the dollar. However, for now we await news. Domestic politics in the UK contains an added dimension for sterling moves, with not only Brexit, but also the beginnings of fractions within political parties playing out.
Seven MPs left the Labour Party yesterday citing racism, bullying and broader concerns over the leadership on Brexit. With Brexit such a contentious issue, will this begin to snowball across parties, or be contained? Sterling found a degree of outperformance yesterday, likely because it negatively impacts on the accession prospects of a market unfriendly socialist Labour government. However, the Brexit chaos has more legs to run in the weeks ahead.
Wall Street was closed for Presidents Day yesterday, whilst US futures are all but flat today. This is reflected in the Asian markets which have been very quiet this morning (Nikkei +0.1%, Shanghai Composite +0.1%), whilst European markets look set for a quiet open today FTSE Futures and DAX futures all but flat).
In forex, there is a shade of dollar strength as the losses faced yesterday have been pared across the majors.
Commodities are also reflecting this with gold and silver slightly lower, whilst oil is holding support.
The outlook for the UK consumer could be set to improve as inflation continues to fall and wages continue to improve. This is laid out in today’s UK employment data for December, with UK Unemployment at 09:30 GMT which is expected to remain at 4.0%, whilst Average Weekly Earnings Growth is expected to tick higher to +3.5% (from +3.4% in November).
The German ZEW Economic Sentiment is at 10:00 GMT and is expected to improve to -14.1 in January (from -15.0 in December). The National Association of Home Builders (NAHB) give the Housing Market Index at 1500GMT which is expected to improve again to 59 in January (from 58) which would be the first time for over a year that the index would have improved on successive months.
Chart of the Day – EUR/CHF
The trading range between 1.1180/1.1500 continues to play out over recent months, with the outlook within the range recently turning more positive. The pivot at 1.1350 has been key to this and once more despite a rally failing at 1.1445 at the beginning of February, the market has gravitated back to the pivot in recent days which is supportive again. There is now a confluence of moving averages which are congregating to flatten around the pivot, to reflect this being the centre of the consolidation range. However, there is an uptrend of the past six weeks which is underpinning the market at 1.1330 today, leaving a run of higher lows. The latest low is at 1.1305 with last Friday’s 1.1330 also supportive. Momentum indicators are stabilising a recent slip back within a still positive medium term bias and given the pivot support, corrections are being bought. Another positive candle today would encourage the move higher again for the resistance at 1.1435/1.1445 to be tested, above which would generate momentum for the market to test the range highs at 1.1500. A closing break below the low at 1.1305 which would also confirm the break of the uptrend and the foundations of a new trend lower.
EUR/USD
We have been discussing recently the importance of a breakdown below $1.1300, but also the increasing resistance that is building at $1.1345. Once more the intraday move yesterday failed just shy of the $1.1345 resistance and the market has dropped back below $1.1300 this morning. The momentum that had been building from Friday’s rebound off $1.1230 seems to have dissipated already. Momentum indicators have tailed off in their recovery and the market is back to contemplating the implications of the recent breach of $1.1300. A resumption of the negative candles today and a close back below $1.1300 will once more chip away at the positive argument that the market is still hanging on to the range support. This one seems to be a move of attrition. A resistance band $1.1300/$1.1345 is building. Yesterday’s low at $1.1280 is initially supportive and on the hourly chart there is a basis where the bulls support around 30 on the hourly RSI. If this breaches then it would suggest pressure on $1.1230 and then the key November low at $1.1213. A close above $1.1345 improves the outlook.
Cable has found a couple of days of rally but the move has simply unwound the market back to its three week downtrend. The near to medium term pivots around the middle of the range are still a gauge. The support around $1.2800/$1.2815 was never really decisively broken, whilst $1.2920 seems to once more be in play as a basis of resistance. The downtrend is falling at $1.2925 today adding to the resistance too. There is still a run of lower highs within the downtrend which suggests a continued negative bias. A renewed negative candle will add to this. However, there is a more settling look to momentum indicators in recent days which suggests that the broader selling pressure within the range may have now begun to dissipate. A breach of the downtrend would corroborate this. This adds conviction to the suggestion that the market may continue to consolidate around these mid-range pivots. Above $1.3000 or a close below $1.2800 would change this.
Corrections remain a chance to buy. The negative implications of Thursday’s negative candle have now settled down and the market is looking to build once more from above the key 110.00 breakout support. Momentum indicators are still positively configured, but the Stochastics need to be watched as they are still threatening to slide back. However, the RSI and MACD lines are still positively configured and suggest that corrections will be seen as an opportunity for the bulls. Friday’s low at 110.25 is supportive, whilst the hourly chart shows the market just edging into the initial resistance between 110.60/110.80 this morning. Upside towards a retest of 111.12 is likely whilst the key medium term pivot at 111.35 is the next key upside test. Holding above the 110.00 breakout maintains the bull bias. There is a support band 109.55/110.00 which is now key near term.
Gold
With another positive session and a third successive bull candle, the outlook for a breakout continues to develop. The January high of $1326 was broken on an intraday basis in a move that is looking to drive the market for a breakout of the consolidation. A trading range over the past few weeks seems ready to take on the basis of a move for the next leg higher as the momentum indicators turn higher in bullish sequence with further upside potential. In the past few sessions there has been a more positive configuration that has developed on the hourly chart momentum indicators, with a sequence of higher lows and weakness being bought into. The first attempt at a breakout has been rebuffed, but the bulls are positioned increasingly well. The base of support is at $1316 but there is a higher low within the range at $1320. A closing breakout above $1326 opens the market to 10 month highs and the 2018 resistance at $1366 is open. A breakout above $1326 also implies around $24 of upside in the coming few weeks as the initial target.
WTI Oil
The market continues to build for the breakout. A move to multi-month highs comes with a run of positive closes and bullish candles which have once more generated positive momentum. Trading above the recent range resistance at $55.75 is still yet to see a closing break but given the Stochastics tracking strongly higher into positive configuration and RSI rising above 60, the outlook is improving decisively now. A close above $55.75 also begins to take the market clear of the 38.2% Fibonacci retracement at $55.55 which would then open the potential for a move towards the 50% Fib level at $59.60. Weakness is a chance to buy, with the 38.2% Fib supportive (at $55.55) and the hourly chart showing a minor pivot at $55.00. The next resistance is at $58.00 which is a long term pivot.
The market was closed for President’s Day yesterday but intraday corrections continue to be a chance to buy for the Dow. Another mild slip was bought into to end the week on a high note and a strongly impressive bull candle. Solid buying from start to the finish of the session on Friday closed the market at its highest since early December. A move through the 76.4% Fibonacci retracement (at 25,715) also means that should the market get through the December high of 25,980 there is good traction in this rally for potentially a full retracement. Momentum indicators are strong with the move, but it will be interesting to see how the market responds with the RSI all but around 70. Of all the rallies in the past year, only once has the RSI moved above 70. This could lead to a stalling of the rally potentially in the coming days. Below the 76.4% Fib (at 25,715) which is now a consolidation point, the support is at 25,310/25,440.
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